Pratt, GE battle over F-35 contract

Published 3:31 pm, Tuesday, September 15, 2009

Pratt &amp; Whitney said its proposal for the next batch of F-35 Joint Strike Fighter engines reduces costs by at least 10 percent from its previous lot as the unit of Hartford-based United Technologies Corp. seeks to allay Pentagon concerns that its price is rising too much.

"The offer reduces costs by double-digits," William Begert, who oversees the program for Pratt, said Tuesday at a breakfast in National Harbor, Md. He declined to give a specific amount.

The proposal comes as Fairfield-based General Electric Co. offers a fixed-price option to keep funding for its backup engine in the final defense bill to be debated in Congress. The Pentagon's top weapons buyer ordered a review of Pratt's engine last month, citing continued cost growth. Pratt's proposal offers similar benefits to fixed-price contracts, Begert said.

"If there are cost overruns and price changes, we will absorb up to a certain amount," Begert said, without providing details. "We are assuming some risk to get close to a fixed-price contract that the government is comfortable with."

GE is fighting to keep Congressional funding for its backup engine in the final defense bill that is being crafted from versions passed in the House of Representatives and the Senate. The House version contains funding for this year, while the Senate's doesn't. GE, which first floated the idea of a fixed-price contract in June, said Tuesday it submitted a proposal last month that covers the first 100 engines, starting with an initial lot of 21.

Pratt offered a fixed-price contract in July for the so-called low-rate initial production Lot 4 engines, and it was rejected in favor of a structure where the Pentagon can pay more if needed, giving the government greater visibility, Begert said.

GE gained 65 cents Tuesday to close at $16 in New Stock Exchange trading. UTC lost 27 cents to close at $61.29.

In the Lot 4 proposal submitted to the Pentagon on Tuesday, Pratt will make 37 engines, including 20 for the conventional version of the Joint Strike Fighter and 17 for the short-takeoff and vertical-landing models, Begert said. By 2014, Pratt plans to deliver 102 engines, including 73 production engines and 29 test items, he said.

At stake is a market that may reach as much as $100 billion over the 30-year life of the Joint Strike Fighter, also known as Lightning II, the engine companies have estimated.

"We welcome Pratt's aggressiveness because our intent is to show we can accelerate competition," said Rick Kennedy, a spokesman for GE.

GE's engine, under current schedules, would sell directly to the government in 2012 then begin competition in 2013, the company said in its statement Tuesday. Pratt has exclusivity on the contract until 2012.